Definition of Par Rate:
Par Rates in Orange County:
This is the interest rate that is used either as a reference point in which a lender will not pay a rebate or require discount points, or for which a lender will pay another lender par value for an existing mortgage. When valuing mortgage servicing values, par rates are also used and are necessary in determining how valuable the mortgage servicing rights (MSR) are.
Here is a working example for Orange County:
If a mortgage broker was working with a borrower and was looking to secure a 30-year fixed rate loan, he would shop for the best rate possible. Let’s assume the best rate he could find was with a lender that offered a par rate of 4% (par again meaning the broker would receive no rebate and pay no discount points). In this instance if the broker wanted to earn a 1.5% rebate, he would go off the lender’s rate daily rate sheet and determine the rate-lock period his borrower needed (we’ll assume 30 days), the rate this lender is offering for a 1.5% rebate is 4.375% which will pay the broker a 1.5% yield-spread-premium (YSP), he can keep this for himself or use part or all of it to pay the borrowers closing costs. Now let’s assume that the borrower wanted to ‘buy-down’ their interest rate with the same lender. Going off of the same rate sheet, they would have to pay 2.375% to buy the rate down to 3.75% - it is always more expensive to buy the rate down, than it is to go upwards and secure a YSP. If they elect to buy the rate down through discount points the broker can offset this by charge front-end points himself to earn commission income.